A Debt Decision

A few days ago I posted my financial goals for 2017. I also reviewed my goals for 2016 and how I failed on about 1/2 of them. One of the goals for 2016 was figure out what to focus on. In other words, should I focus on paying down debt, saving for retirement, saving in general. I have a good deal of trouble of focusing on one specific item because I want to try to do things all at once.

In the interim I was actually reading some other financial blogs, including The Frugalwoods latest post (love their blog). That post, along with a whole host of others have really convinced me that paying off our mortgage might not be the best move. I mean our best chance to achieve financial independence is through investing in the market or potentially other subjects. But investing should be our focus. Plowing money into retirement accounts and the like.

That said there is one thing, in particular, that I do want to focus on this year and I guess it would be another financial goal: paying off Mrs. ROB’s car.

If we do normal payments on the car there will be about $15000 left. The interest rate is really cheap as well at 2.13% interest. However, the payment is about $600 per month.

Normally, I would say just leave it. The interest rate is so cheap you can’t borrow money like that anymore. However, I am trying to think proactively into the future. If we are lucky enough to start a family in the next 9-18 months that $600 a month will come in really handy. Because as of right now, Mrs. ROB’s income helps us pay all of the bills and continue to save aggressively for retirement. However, if Mrs. ROB wants to stay home or reduce her workload then we lose income, which would result in a reduced ability and flexibility in our monthly budget. So if we pay off the car then we reduce $600 from our budget and potentially we can save that money for the future. We obtain more flexibility on what our plans can be. Flexibility, particularly when it comes to starting a family, is more important to me than a low-interest rate on a car.

Also, I may also be able to continue my level of savings and not have to reduce them to cover our bills. So I will sacrifice the low-interest rate for more flexibility.

Of course that is easier sad than done. Where do I come up with 15k to pay off the car? Well that is a good question. I am not sure if I can even do it, but the point is I have a focus. The car is the focus and I will try to throw every extra dollar, above saving, at it to get rid of it as expeditiously as possible. Wish me luck!

You are definitely right about it not being as bad. I think this is more about flexibility, particularly considering my wife’s employment situation. If nothing else I hope to knock a huge chunk out of it this year.

Sounds like a good goal, just make sure you have some savings for the new guy to come. There are always some unexpected expenses that pop up with that. And yeah, the car debt def takes precedent over the house debt, due to tax advantages.

Quite true….although my house rate is so low and my balance gets lower all the time that the tax advantages aren’t quite as good. That said, houses go up in value…cars not so much. Let’s hope I can get ‘er done.

I would highly recommend paying off other debt before your mortgage. Also a $15,000 car loan is extremely high for somebody trying to pay off debt and reach Financial Independence. You couldn’t find a cheaper option?

I agree. And it is high. This is a car my wife bought two years ago and we have only paid off about 10k of it. That is why I am going to accelerate payments to give us more flexibility. The cheaper option wouldn’t necessarily work because we owe more than the car is worth. We can pay it off soon enough that it will give us 3 year old car with hopefully another decade without payments.